Paying attention to outcomes pays off in big ways. Yet many companies fail to take the time to systematically figure out how to measure performance. As a result, the business doesn't flourish as it should. Instead, it stagnates. This presentation highlights the nine success factors of a balanced performance scorecard.

1. How to Create a Balanced
Performance Scorecard
www.LeadingResources.com

2. Overview
Paying attention to outcomes pays off in big ways.
Yet many companies fail to take the time to
systematically figure out how to measure
performance. As a result, the business doesn't
flourish as it should. Instead, it stagnates. This tool
shows how to create a balanced performance
management scorecard.

3. When a large health care system in California
started measuring health outcomes, a surprising
thing happened: patient health increased, while at
the same time, health care costs declined. Why
this surprising result? A major factor was that
doctors started looking at the performance
measures and teaming up to treat the sickest
people. As a result, the number of “frequent fliers”
– people who regularly sought medical care –
decreased dramatically.

4. The following diagram shows how to distinguish
between different types of performance measures:

5. When we work with our clients, we help
them look holistically at the organization and
develop a set of performance measures that
tracks outcomes rather than outputs.

6. We then help ensure that the information is
communicated throughout the organization on
a regular basis – via forums in which people
talk about performance, look at trends, and
focus on areas where the organization is not
meeting its targets.

7. Sharing performance information in this
manner aligns people around a common set
of goals and focuses everyone’s attention on
how to improve organizational performance. It
also builds trust when people see that leaders
are holding everyone accountable.

8. The bottom line:
Done well, a strong set of performance
measures will raise the organization to a
higher level of success.

9. Scorecards should be developed first
for the organization as a whole, and
then for the departments or functional
units within it. Let’s look an example.

10. Performance Scorecard Example:
A utility company’s overall performance scorecard
lists the following as its core values:
Financial sustainability
Reliability of service
Customer satisfaction
Employee quality
Safety
Environmental responsibility

11. Under reliability, it lists these metrics and targets:
These high-level performance measures drive a
more detailed set of performance metrics and
targets related to transmission line quality, circuit
redundancy, and reserve power available.
Individual department managers are responsible
for working together to achieve these targets

12. Success Factors
What makes a performance management
system successful? Research and
experience shows the following to be the
important success factors.

13. 1. Start at the beginning. A solid measurement
process is built on the foundation of core values
and key performance indicators. If these are not
set with a great deal of thought and clarity,
implementation can easily fall down. Once these
are defined by senior management, staff should be
responsible for defining performance expectations
related to the programs and processes needed to
achieve these results. Reversing the process
results in confusion.

14. 2. Build focus and alignment. It’s important to
focus on the most important outcomes. These
should be identified in a strategic plan. Don’t try
to measure everything. Make sure people in all
parts of the organization operate under a set of
well-understood performance metrics and
targets, not just some.

15. 3. Create a balanced scorecard. A good
scorecard provides a balanced look at all
aspects of the organization. It also mixes
different types of data. Financial performance is
a “lagging” indicator of performance, since by
the time it’s measured, there’s little you can do
to change the results. Customer surveys
frequently tip people off to performance issues
that are just emerging, and thus are considered
“leading” indicators.

16. 4. Champion the scorecard. Make sure you
have strong championship from the top. The
performance scorecard must be highly visible
and regularly reviewed. Just as the CEO makes
sure the overall scorecard is visible throughout
the entire organization, senior managers need
to make sure their departments’ performance
scorecards are visible.

17. 5. Build “Learning loops.” A measuring
system is nothing without the communication to
generate shared understanding and ideas for
improvement. The leadership team should
model this by creating regular forums where
they share performance data and discuss steps
to improve performance. Mid-level managers
should do the same.

18. 6. Invest in the system. It will take resources
to build the necessary data collection and
information management systems. It will also
take time to identify and train people to pull
together the performance data into a useable
scorecard.

19. 7. Instill clear roles and responsibilities.
Measuring performance creates powerful
incentives for department managers to
cooperate in order to achieve important
outcomes. Make sure it’s clear who’s
responsible for what.

20. 8. Prepare for a culture change. When you
start to measure performance consistently, it
will trigger a change in the organization’s
culture. Sharing information about
performance and adjusting behaviors
accordingly requires a more open culture –
one that is comfortable admitting what is
going well, what is not going well, and
deciding what to improve.

21. 9. Don’t let the perfect be the enemy of
the good. No performance management
system will be perfect. Data will be difficult to
get. There won’t be enough people with the
skills to collect and synthesize the data. This
is not a reason not to do it. All organizations
should have performance measurement
systems.

22. Measuring Different Outcomes:
Performance management systems are
relatively easy to build when well-understood
outcomes are in place. Developing these
outcomes is the responsibility of the senior
management team.

23. Measuring Different Outcomes:
This chart shows some examples of outcomes
and related ways to measure performance.

24. High performing organizations integrate the
different levels of performance measurement
(inputs, activities, outputs, outcomes, and
ultimate outcomes) in a system that is clear
to everyone.

25. LRI prefers to work from the top down,
starting with the board of directors or
executive team, to assure there is clarity
about the long-range measures and targets.
Once those are defined, it becomes much
easier to create an integrated system of
performance management measures that
cascades throughout the organization.

26. Once these different levels of performance
measurement are in place, LRI can facilitate
the development of the ongoing monitoring
process to assure that the communication
about performance management results in
what we call "learning loops."

27. These feedback loops are the key to
assuring that the organization uses its
performance scorecards in a productive way,
enabling people to talk about problem areas,
brainstorm potential solutions, and decide
how to make mid-course adjustments. This
continuous improvement is what creates
learning organizations.

28. To speak with an LRI consultant about
developing a clear performance
management system for your organization,
please call (916) 325-1190 or contact us
online at www.LeadingResources.com.
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